Protecting your cryptocurrency tokens with a software wallet

Initially getting involved in blockchains and cryptocurrencies, you will most likely use a software wallet to store your tokens. Because software wallets are easily functional and accessible from daily devices like computers, laptops, and smart phones, they are frequently used for token storage, especially tokens you are primarily using and trading.

Software wallets fit into our developing ‘app’ world and make it easy to send and receive instantaneous payments to and from your address. As cryptocurrency becomes more available for buying products and services, software wallets are most likely to be used to hold tokens. This is why we compare software wallets to holding cold, hard cash in your pocket (soon it may just be on your phone)! If you plan on needing frequent access to your tokens, a software wallet might be the fit for you. Want to learn more? Keep on reading below!

If you view your coins as more of a long-term investment or a savings account, we suggest you look towards hardware wallets to securely store them.

Cryptographic Software Wallets

Software wallets are typically hot storage wallets (and if you don’t know what that means, you need to take a step back and read our Wallets page!). Many wallets now also have capabilities for cold storage. Because they are typically hot storage wallets, they are frequently and easily connected to the internet, and provide easier access to your tokens, but also a greater risk of them being hacked or stolen. Not all software wallets are always or even most of the time connected to the internet, and they offer ways for cold storage. The increased risk therein comes from the software being on devices like your computer, laptop, or phone that are often online, and not always secure the way the software is.

Your crypto is only as secure as the device it is on, when using a software wallet.

Software wallets use cryptography to encrypt and secure your tokens. They often use mnemonics, seed phrases (see our Ask an Expert on HD Wallets), and have options for passwords/codes, along with your public and private key, which all provide another level of security beyond the cryptography. Keep in mind though, as cryptographically secure the software may be, if your device is not secure, your tokens can be very vulnerable.

If you are using some tokens as a long-term investment or like a ‘savings’ account, then hardware wallets are what you need for your security! Software wallets are better for tokens you are using like ‘cash’ and need frequent access to.

So many options!

Software wallets are numerous and offer great functionality for daily or weekly use. The first type of wallets were Bitcoin Clients, which are fully-validating nodes forming the core of the blockchain network. This core client software allows you to directly interact with the network and blockchain, while contributing the the validation of transactions within the network, by simply having the software on your computer. Satoshi Nakamoto supposedly used a Bitcoin client, and Bitcoin clients were the primary wallet used in the first transactions on the Bitcoin blockchain. Please be aware Bitcoin clients are the counter to other software wallets that do not run nodes, but rather rely on third-party services to provide software and run nodes for the user. If you want to use a Bitcoin client as a software wallet, do your research first! They require great deals of storage and a strong connection to the internet (read more about decentralization here). The first Bitcoin Client was BitcoinCore, formerly known as BitcoinQt.

Bitcoin clients were the first, forming the path for other software clients that allowed users to not have to be a fully-functioning node. Today there are so many software wallets that can be downloaded to your laptop or computer, or even simply be an application on your smart phone! Below are three types of software wallets that we will explain and review (be aware that some softwares function as more than one type, like being mobile and desktop, or mobile and online web wallets):

1. Desktop wallets

The first type of software wallet we will cover is for desktops. Using your laptop or computer, you can download the software to you device, and send your tokens to it. Some desktop wallets, like Bitcoin Core (a Bitcoin client) and other initial software wallets, allow you to download the whole blockchain to your device. As we stated above though, this is not always easy, nor is it necessary for everyone. Bitcoin clients were the first desktop software wallets, but now there are many more that do not require you to be a fully-running node and download the whole chain. Below are some desktop software wallets for you to check out, and hopefully we will have some reviews of them for you soon!

Mist: the official Ethereum wallet; suggested for more advanced users (Ether & all ERC20 tokens)

2. Mobile wallets

Mobile wallets, the second version of a software wallet we will review, are applications that you can download to hold your cryptocurrencies in. Your phone makes your wallet extremely easy to access, and provides easy, instant opportunities for sending and receiving crypto. Most mobile wallets have integrated QR code capabilities which increases the ease for transactions. Just pull it out of your pocket, unlock the app, pull up your QR code, and scan to send or receive!

Remember your mobile device can easily be stolen, broken, or lost which is not a good level of security for a lot of tokens. A lot of mobile wallet applications allow you to have multiple tokens and wallets within the app, and they include backup features. Some even include other app integrations, like marketplaces, debit cards, and more. Below are some mobile wallets for you to check out, and hopefully we will have some reviews of them for you soon! Just download and go!

3. Online Web wallets

Online web wallets are, as they are named, for use online. With an internet connection you can store and access your crypto-coins. A third party allows you to use their software through the cloud, and these are sometimes referred to as “cloud wallets.” This is because your tokens are stored on the cloud, and your keys are held in a private server.

Because these are online wallets, they are always connected to the internet, which causes them to be ‘hot’ wallets and more vulnerable than other means of securing your crypto. These are the least suggested for storing large amounts of coins. Here are some online web wallets, and notice that certain ones are also considered or capable of being mobile wallets or desktop wallets.

Different functions and features

Software wallets main function and most valued feature is the ease-of-access. With mobile wallets, you can access and use them anywhere, and for online wallets, you can use them whenever you have an internet connection! These two don’t normally have cold storage options though, so beware if you have lots of coins held in them. Desktop wallets don’t even always need internet, and they provide cold storage options most of the time. Desktop wallets also enable you to run a node for the network, which is pretty cool!

Another functionality of software wallets is that you can often use exchanges integrated with them, like Jaxx’s partnership with Shapeshift (an online exchange). This makes it easier for the daily user to exchange their tokens for other ones and maintain all of your wallets in the same place, without having to go through the steps you would with a hardware wallet!

Remember that your crypto on software wallets is only as secure as the device you are using to run them, so be careful!

Software Wallet Reviews

More software wallet reviews will be coming soon! Keep checking back!

For more information on how to buy cryptocurrencies, visit our guide here! There are also some places you can spend your bitcoins! Check it out!

MyEtherWallet is a web interface that allows you to generate wallets for your Ether & ERC20 tokens. Check out our demo & review to make sure you are being safe with your cryptocurrencies! It is of the uptmost importance.

Jaxx is a software wallet for cryptocurrencies. Our video demos and explains Jaxx wallet is, its features, how to get it and how to set up your own wallet! If you need a secure and accessible place for your crypto, Jaxx wallet might be for you!

Metamask is a browser extension that allows you to interact with the Ethereum blockchain, all without downloading the entire data-filled blockchain. Our video explains Metamask’s broswer extension’s features, and demos some processes.

Fidelity Investment is one of the largest asset management firms in the world. And they’ve shown affection for blockchain and crypto before. Now they are taking it a step further, and making some real progress in their business on the blockchain.